Praxair Inc. (PX) recently announced plans to expand the capacity of its Memphis, Tennessee, air separation complex to satisfy the needs of oxygen and nitrogen of Nucor Corporation and Valero Energy Corporation.
Through this expansion plan, the company targets to add daily liquid production capacity of approximately 400 tons, which will nearly double the capacity of the complex. This extension scheme apart, the company has completed the construction of a pipeline in the Riverport area while a new plant construction is expected in the third quarter of 2011.
Nucor Corporation is a North Carolina-based steel producer with operations primarily in the U.S.and Canada. The steel maker is also North America’s largest metals recycler; while Valero Energy Corporation is an international manufacturer and marketer of transportation fuels, other petrochemical products and power.
Praxair is one of the leading companies engaged in the production and distribution of industrial gases, primarily catering to demands in North America, South America, Europe, and Asia. We believe Praxair treads on its growth trajectory in the quarters ahead as is evident from the company’s promising EPS guidance of $5.25-$5.40, with mid-point up 12.3% year over year and the revenue growth expectation of $11 billion.
The growth prospects of industrial gas producers are very bright going forward, with demand for gases expected to rise manifold due to their wide application areas. Industrial gases are being widely used by the chemical processing and petroleum refining, metal production and fabricating, and electronics and health care industries. Demands for industrial gases are also on the rise in the emerging economies.
However, the highly-competitive environment as well as extreme dependence on energy costs can be causes of concern. Prime competitors of the company include Air Products & Chemicals Inc. (APD) and L’Air Liquide SA.
We currently maintain our Neutral recommendation on the stock.
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